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Nestlé has posted a drop in annual sales volumes as “unprecedented inflation” hit consumer demand for its food and beverage products.

The world’s largest food group posted full-year organic growth of 7.2% in 2023, with pricing up 7.5% and sales volumes down 0.3%.

Total reported sales fell 1.5% to CHF93bn as foreign exchange decreased sales by 7.8% and net divestitures had a negative impact of 0.9%.

Nestlé said sales volumes had turned positive in both the fourth quarter and the second half, supported by the benefits from portfolio optimisation, improving customer service levels and increased brand support.

Overall sales growth was broad-based across most geographies and categories. In developed markets, organic growth was 6.4%, led by pricing with negative volumes. In emerging markets, organic growth was 8.4%, driven by pricing and positive RIG.

By product category, Purina Petcare was the largest contributor to organic growth, with strong momentum across all channels.

Coffee saw high single-digit growth, with positive sales developments across brands, supported by strong demand in out-of-home channels, while infant nutrition also posted high single-digit growth, based on continued momentum for premium infant formula. Dairy was also up by mid single-digits.

Confectionery recorded high single-digit growth, fuelled by continued double-digit growth for KitKat. Prepared dishes and cooking aids and its water categories both posted mid single-digit growth, while Nestlé Health Science recorded low single-digit growth.

By channel, organic growth in retail sales remained robust at 6.5%. E-commerce sales grew by 13.4%, reaching 17.1% of total group sales. Organic growth of out-of-home channels was 15.9%.

The group’s underlying trading operating profit margin was 17.3%, increasing by 20 basis points on a reported basis and by 40 basis points in constant currency. The trading operating profit margin was 15.6%, increasing by 160 basis points.

The group said that pricing, cost efficiencies and portfolio optimization more than offset significant cost inflation.

Net profit increased by 20.9% to CHF11.2bn and net profit margin increased by 230 basis points to 12.1% on a reported basis and by 240 basis points in constant currency.

In 2024 Nestlé expects organic sales growth around 4% and a moderate increase in the underlying trading operating profit margin.

In 2025 it is aiming for mid single-digit organic sales growth and an underlying trading operating profit margin range of 17.5% to 18.5%.

Mark Schneider, Nestlé CEO, commented: “Unprecedented inflation over the last two years has increased pressure on many consumers and impacted demand for food and beverage products. In this challenging context, we delivered strong organic growth and solid margin improvement with increased marketing and other growth investments. Our free cash flow generation returned to historical levels.

“Looking to 2024, we are prioritising volume- and mix-led growth with increased brand support, as we enhance value for consumers through active innovation and renovation, premiumisation, affordability and more nutritious options. We will continue to focus capital allocation on our fast-growing billionaire brands, which enables us to deliver dependable growth while enhancing brand loyalty.

“To drive market share gains, our key priorities are delighting consumers through differentiated offerings and focusing on superior execution. We are confident that we have the right strategy, portfolio and capabilities to deliver on our 2025 targets.”

Nestlé shares are down 4.5% on the update at CHF94.24.

Morning update

Danone returned to sales volume growth in the fourth quarter in what it called a “strong” year of “consistent progress”.

In the fourth quarter the French dairy giant posted consolidated sales of €6.7bn, up 5.1% on a like-for-like basis, led by an increase of 4.3% from price and 0.8% from volume/mix.

On a reported basis, sales decreased by 5.0%, mainly due to the strong negative impact from forex (–6%) and the deconsolidation of EDP Russia starting from July 2023.

In the fourth quarter, Europe sales were up 6% on a like-for-like basis, with price up 5.7% while volume/mix was back to positive territory, at 0.3%. EDP performance continued to improve sequentially, notably led by Actimel, Danone, YoPro and Alpro. Specialized Nutrition delivered resilient growth in a soft category, while Waters posted strong growth, driven by evian, Volvic and Zywiec Zdrój.

In North America, sales were up 3.1% on a like-for-like basis, led by volume/mix, up 2.8%, while pricing normalised (up 0.3%).

In Latin America, sales were up 8.1%, with price up 9.4% and volume/mix down 1.3%, while the rest of the world saw sales increase by 3.5% on a like-for-like basis, with price up 6.4% and volume/mix down 2.9%.

For the whole of 2023 consolidated sales stood at €27.6 bn, up 7% on a like-for-like basis, with price up 7.4% and volume/mix down 0.4%.

On a reported basis, sales decreased by 0.2%, reflecting notably a negative impact from forex (–4.3%) and scope (–3.4%), and a positive contribution of hyperinflation (+1.8%).

Danone’s recurring operating income reached €3.5bn in 2023, with operating margin at 12.6%, up 40 basis points compared with last year.

This increase was mainly driven by the improvement of the margin from operations and benefits from volume, mix and price, partially offset by the still strong negative impact of input-cost inflation net of productivity.

2024 guidance is for like-for-like sales growth between 3% and 5% with moderate improvement in recurring operating margin.

CEO Antoine de Saint-Affrique commented: “2023 was a year of consistent progress and strong delivery against our Renew Danone agenda. We put science back at the heart of what we do and further tied sustainability to business performance. We made significant progress in sharpening our portfolio. We further invested behind our brands, our innovations and our capabilities, progressively improving the quality of our growth, while creating value for all stakeholders.

“In a context which remains challenging, the progressive improvement of our volume-mix, turning positive in Q4, the visible progress made by EDP Europe, and the continued strong momentum of our Medical Nutrition activity are encouraging signs, even if lots remains to be done.

“Building on the positive momentum of 2023, we are starting this new financial year with confidence in our Renew strategy. We will continue to focus on consistent execution and delivery, in line with the mid-term ambition we defined in March 2022. We will keep progressively improving the resilience of Danone, further equipping it with the skills, science and tools it needs to be future fit. As we start projecting ourselves, we look forward to hosting a Capital Market Event in June 2024.”

Elsewhere, Coca-Cola HBC has agreed to acquire 100% of BDS Vending Solutions, a food and drink vending services business in Ireland, with a fleet of approximately 2,000 vending machines.

The two founders, David Mullan and Brian Berry, have agreed to support the ownership transition of BDS Vending following completion of the proposed transaction.

CCH said that the acquisition of BDS Vending is consistent with Coca-Cola HBC’s strategy to enhance its route-to-market capabilities, including last mile delivery, while at the same time it will unlock profitable opportunities across its well-rounded cold and hot beverages and snacks portfolio.

“BDS Vending furthermore provides a valuable building block, with proven technology and services, from which Coca-Cola HBC plans to develop additional capabilities across its markets,” it said.

PayPoint has announced a partnership with Royal Mail across its Collect+ network.

The multi-year agreement will enable parcel drop off for Royal Mail customers at 5,000 Collect+ stores in communities across the UK by the summer. The partnership will provide Royal Mail customers with access to a range of services via PayPoint’s retailer partners.

Meanwhile, the partnership will support Royal Mail’s strategy to expand its OOH reach and local network, providing customers with a range of flexible choices for dropping off parcels and meeting growing demand for additional delivery, collection and drop-off options.

Nick Wiles, CEO of PayPoint, said: “We are delighted that Collect+ will be playing a key role in our partnership with Royal Mail. As consumer channel shift continues to move towards out of home, our fantastic retailer partners will now have an even greater opportunity to serve the needs of their customers in communities across the UK through our leading OOH network.”

“We remain fully committed to investing further in the in-store consumer experience, through technology and operational support for our retailer partners, as well as continuing to grow our Collect+ network to service the strong growth in this area.”

Martin Seidenberg, group chief executive of international distributions services, said: “As customer preferences have evolved, Royal Mail has already opened up a variety of new ways for customers to access its services, including more online postage options through our website and app, 24/7 drop off at locations like parcel postboxes and collection from home through Royal Mail Parcel Collect.

“This partnership is an important part of Royal Mail’s strategy to make our services even more convenient for customers and to expand our out of home offering to provide additional locations for our customers to use our services.”

On the markets this morning, the FTSE 100 is up 0.1% at 7,672.1pts.

Early risers include McBride, up 3.1% to 72.2p, Glanbia, up 2.9% to €15.85 and Hilton Food Group, up 2.3% to 799p.

Fallers include Tesco, down 1.4% to 281.6p, Virgin Wines, down 1.3% to 37p and Unilever, down 1.2% to 4,005.5p.

Yesterday in the City

The FTSE 100 closed down 0.7% to 7,662.5pts yesterday.

The day’s fallers include McBride, down 6.2% to 70p, Naked Wines, down 4.2% to 70.1p, Nichols, down 3.7% to 982p, Ocado, down 2.4% to 519p and DS Smith, down 1.3% to 320p.

Tate & Lyle lost 0.2% to 616.5p after its market update yesterday.

Risers included THG, up 4.6% to 65.9p, Domino’s Pizza Group, up 3.3% to 379.4p, PZ Cussons, up 2.8% to 103p, Kerry Group, up 1.9% to €80.65 and Fever-Tree Drinks, up 1.7% to 1,070p.

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